SunEdison triggers collateral call for TerraForm Power

California – The renewable energy company, SunEdison (NASDAQ: SUNE), appears to have triggered a collateral call on its $410 million margin loan after the decline of its yieldco TerraForm Power Inc., which fell 36 percent in September according to a report from CreditSights.

The energy firm is one of the bunch of companies that spin off their finished projects to public investors through related business ventures named “yieldcos”, eventually facing the decrease of share prices in those vehicles. Now SunEdison and its yieldco TerraForm Power face doubts on the safety of their collective funding arrangements as a consequence of relying on eager capital markets so far to finance their growth.

The company dropped to another 52-week low of $6.56 yesterday which followed Monday’s low of $6.76. Notably, the stock has lost over 80% from the 52-week high of $33.45 hit on Jul 20 this year. The CreditSights report has determined that the cash collateral shortfall could be about $315 million based on TerraForm’s September ending price of $14.22 per share.

“It is entirely possible the company and lending bank disagrees with us and/or has amended the loan, but we have seen zero disclosure saying this is the case […] We feel this shows a clear lack of disclosure and further lessens our confidence in management,” the report read.

After the company’s major acquisitions for last year of First Wind, Solar Grid Storage and Vivint Solar, among others, it resulted impossible to fund the projects due to lack of financial strength. The moves once believed to be strategic turned ineffective and turned into an outstanding debt of nearly $10.7 billion.

Commodities prices have collapsed and interest expenses are massively increased, SunEdison has had to spend $302 million on interest expenses compared with $160 million in the comparable year-ago period, and due to increased costs, the company posted adjusted loss of $216 million or 74 cents per share in the second quarter.

All this negative operating cash flow indicates to investors that SunEdison might not be able to return value to shareholders as it will be probably unable to generate enough cash to cover operational costs.

Others disagree

John Hempton, chief investment officer at Bronte Capital Management, has a different opinion and said on his blog that he’s buying SunEdison shares despite concerns over the company’s financing arrangements.

“We have gone to considerable effort to convince ourselves Sun Edison is not Northern Rock with solar panels […] we have talked to several people who have organized funding for these things and it seems okay to us,” he said.

The International Energy Agency has also commented on the situation for the yield co sector with a slowdown in investment looking increasingly likely

“The yieldco business model is based on increasing the number of projects in its parent developer company in order to generate increasing cash flows for shareholder; this situation might affect cash flows of some yieldcos, and pose challenges to profit distribution to shareholders,” Bloomberg reported.